Downturn Preppers: How Savvy Advisors are Preparing For That Looming Correction

When a massive market correction hit a decade ago, communications and staffing demands grew exponentially for her RIA, recalls Cheryl Holland, the founder of Abacus Planning Group, based in Columbia, S.C.

“Your team, they get exhausted,” Holland says of her firm's advisors during the 2008-2009 downturn. One advisor developed an alcohol dependency because of the stress, Holland says – a consequence she only realized later and much regretted.

Given that history, Holland and her team at Abacus, which now has more than $1 billion under management, have taken steps recently to ensure Abacus’ client communications systems and strategies are effective enough, and staff size capacious enough to handle bad times, since those requirements will rise if markets fall.

“We are thinking about it,” Holland says.

She’s not the only one. Other advisory firm leaders also have evaluated their staffing and communications strategies to be sure their teams cope with what would they expect to be an onslaught of client concerns if the Dow goes south.

Preparations are also happening at the big wirehouses, according to Charles Hintz, an adjunct professor of finance at the Stern School of New York University, who, until his retirement in 2014, was an equity research analyst at Sanford Bernstein, covering the securities and asset management industries.

“A decade of rising equity markets and nine years of zero interest rates can certainly lull both public and financial professionals into complaisance,” he writes in an email responding to an inquiry for this story. But Hintz adds, “For once it appears that The Street is anticipating a problem, not simply reacting to one.”

Yet not all advisory firm managers have concluded, as Holland did, that they necessarily need more people to man the phones during a correction.

“I’m not thinking of having surplus staff for that reason,” Janice Hobbs of Jan Hobbs Financial Group in Orange, Calif., which is affiliated with LPL Financial, says about a market correction.

Instead, Hobbs, a 34-year veteran of the advisory business, has repeatedly warned her clients already that a bear market is around the corner. Significantly, she has also structured their portfolios so that during that correction they “will be in a position to sit back and watch dispassionately as other people panic,” Hobbs says.

“We always make sure people have enough in reserves,” she says adding that diversification also means “you aren’t going to get killed. We like to build in guaranteed income.”

Hobbs relies on – among other tools for such portfolio stability – structured notes and annuities.

“We are prepared for a down market,” Hobbs concludes. She recognizes it’s hard for her staff to speak to 100 people at a time, which could be the incoming call volume on a day the market drops dramatically. But at the same time, given how she has structured her clients’ portfolios, Hobbs says, “We know what we’ve done to prepare, so I can’t wait to explain to them how it’s working.”

Ross Gerber, CEO of Santa Monica, Calif.-based Gerber Kawasaki Wealth and Investment Management, which has more than $840 million under management, also has prepped for a downturn. He expects no delays in dispatching messages to clients — precisely because he has made a name and high profile for himself on social media.

“Usually we are the first people to get a letter out to clients,” Gerber says. If his clients somehow miss that, most of them follow Gerber on Twitter, so they get his outlook right away.

Should the phones start ringing if October lives up to its reputation as a month for markets to fear, his firm at present has the manpower to handle the load, Gerber says.

Cheryl Holland

“We’re staffed today so if a horrible correction happened, we can handle it,” says Gerber. Gerber Kawasaki has 27 employees, including 18 advisors, he says. All client callers will “talk to a human being,” Gerber says.

It’s that human touch that will lead a market downturn to trigger a growth in his client roster, Gerber predicts.

“This is when we gain business. We gain clients because they can’t reach a real person at their big firms. That’s when clients get pissed off and start looking for someone else,” Gerber says.

But for some advisory firms’ managers, it would be counterintuitive to hire for a downturn. “They tend to manage their staff very, very closely,” says Tim Welsh, the president of a San Francisco-based consulting firm Nexus Strategy. “Their revenues are going to take a hit with a downturn,” Welsh adds.